Case Summary (G.R. No. 95546)
Policies, Coverage Periods, and Premiums
AHAC issued policy No. AH-CPP-9210452 (covering 1 March 1982 to 1 March 1983) for a total premium of P466,103.05; premiums were paid in installments on 12 March 1982, 20 May 1982, 21 June 1982, and 16 November 1982, and these payments were accepted by AHAC. AHAC then issued policy No. AH-CPP-9210596 (1 March 1983 to 1 March 1984) with the same premium amount, paid by installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983; those payments were also accepted. AHAC renewed the policy again as No. AH-CPP-9210651 (1 March 1984 to 1 March 1985). For this renewal, TUSCANY made two installment payments—P52,000.00 on 6 February 1984 and P100,000.00 on 6 June 1984—and then refused to pay the remaining balance of P314,103.05.
Reservation Clauses on Receipts and Petitioner’s Position
Receipts for the installment payments contained reservations: (1) acceptance of payment shall not waive the company’s rights to deny liability on any claim arising before such payments or after expiration of the credit clause; and (2) subject to no loss prior to premium payment—if there is any loss, such is not covered. TUSCANY contended that because premiums were not fully paid on or before policy effective dates and because receipts contained the restaurant clauses, the policies were never valid and binding under Section 77, entitling it to a refund of all premiums paid (and seeking counterclaims for premiums already paid).
Procedural History and Trial Court Ruling
AHAC sued to recover the unpaid balance of P314,103.05 for Policy No. AH-CPP-9210651. TUSCANY admitted issuance of the policy, explained its refusal to complete payment based on the absence of a credit clause and reservation language in receipts, and counterclaimed for refunds. The trial court, after motions for summary judgment, dismissed both the complaint and the counterclaim. The trial court found that (a) because premiums for the three policies were paid during the lifetime of the policies, a risk had attached and the counterclaim for refund was not justified; and (b) due to the reservation language in the receipts, the insurer had no right to demand unpaid premiums after the policy term’s lapse, so the insured was justified in refusing to pay the balance.
Court of Appeals Ruling
On appeal, the Court of Appeals modified the trial court’s judgment by ordering TUSCANY to pay the balance of the premiums due on Policy No. AH-CPP-9210651 (P314,103.05) plus legal interest until fully paid, while affirming denial of the counterclaim. The appellate court reasoned that (1) although payment of premiums is ordinarily an indivisible obligation, the parties had agreed to installment payments and treated the contract as binding; (2) nothing in Section 77 expressly prohibits agreement to installment payments; (3) the insurer’s voluntary acceptance of partial payments evidenced an intention that the contract be binding upon payment of the first premium; and (4) basic considerations of fairness and equity preclude an insurer from collecting and accepting installment payments and later denying liability solely because the premium was not fully paid.
Issue Presented to the Supreme Court
Whether the insurance policies were invalidated by payment of premiums in installments (and the absence of an express acknowledgment in the policies of full receipt of premiums), rendering the contracts unenforceable under Section 77 of the Insurance Code and entitling the insured to refund of premiums.
Supreme Court Ruling and Core Reasoning
The Supreme Court affirmed the Court of Appeals. It held that the insurance policies were valid despite installment payments. The record demonstrated that both parties intended the policies to be effective and binding despite staggered premium payments—evidenced by renewals for successive years and the insurer’s acceptance of all installment payments for 1982 and 1983 and of partial payments for 1984. The insurer’s acceptance of those payments indicated an intention to honor the policies. Principles of equity and fairness barred the insurer from collecting and accepting installment payments and thereafter denying liability on the ground that premiums were not prepaid in full.
Application and Interpretation of Sections 77 and 78 of the Insurance Code
Section 77 requires that a premium be paid as soon as the subject is exposed to peril and provides that, notwithstanding any agreement to the contrary, no policy is valid and binding unless and until the premium has been paid, except in certain life policies with grace periods. The Court interpreted Section 77 as precluding a stipulation that a policy be valid without payment of premium, but not as expressly prohibiting an agreement to allow credit extensions or installment payments. Section 78 (discussed by the appellate court and cite
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Case Caption and Citation
- Decision rendered by the Supreme Court, First Division, reported at 289 Phil. 942, G.R. No. 95546, dated November 6, 1992.
- Parties: Makati Tuscany Condominium Corporation (hereafter "petitioner" or "TUSCANY") versus The Court of Appeals and American Home Assurance Co., represented by American International Underwriters (Phils.), Inc. (hereafter "private respondent" or "insurer").
- Opinion penned by Justice Bellosillo; concurrence by Cruz (Chairman), Padilla, and Grino-Aquino, JJ.; Medialdea, J., on leave.
Central Legal Question
- Whether payment by installment of premiums due on an insurance policy invalidates the contract of insurance under Section 77 of P.D. 612 (the Insurance Code), as amended.
- The case turns on the legal import of Section 77 and its interplay with installment payment arrangements and related acknowledgments or reservations.
Relevant Statutory Provision Quoted
- Section 77, P.D. 612 (Insurance Code), as amended:
- "An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies."
Factual Background — Policy Issuance and Payment Chronology
- 1982 Policy:
- Private respondent issued Insurance Policy No. AH-CPP-9210452 covering petitioner’s building and premises for the term 1 March 1982 to 1 March 1983.
- Total premium: P466,103.05.
- Premium paid in installments on: 12 March 1982; 20 May 1982; 21 June 1982; 16 November 1982. All installments were accepted by the insurer.
- 1983 Renewal:
- On 10 February 1983, insurer issued Insurance Policy No. AH-CPP-9210596 renewing/replacing the prior policy for 1 March 1983 to 1 March 1984.
- Premium: P466,103.05.
- Installment payments made and accepted on: 13 April 1983; 13 July 1983; 3 August 1983; 9 September 1983; 21 November 1983.
- 1984 Renewal:
- On 20 January 1984, insurer issued Insurance Policy No. AH-CPP-9210651 for 1 March 1984 to 1 March 1985.
- Two installment payments made and accepted: 6 February 1984 (P52,000.00) and 6 June 1984 (P100,000.00).
- Petitioner thereafter refused to pay the remaining balance of the premium for the 1984–85 policy.
Procedural History
- Insurer filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
- Petitioner filed an answer with counterclaim:
- Admitted issuance of policy AH-CPP-9210651.
- Explained discontinuance of premium payments because the policy lacked a credit clause in its favor and receipts contained reservations disclaiming insurer liability (quoted reservation language detailed below).
- Pleaded that the policy was never binding and asked for refund(s): counterclaim for P152,000.00 (premiums already paid for 1984–85) and, in amended counterclaim, refund of P924,206.10 representing premium payments for 1982–85.
- Trial court (ruling dated October 8, 1987) dismissed both complaint and counterclaim.
- Both parties appealed from the trial court judgment.
- Court of Appeals modified trial court judgment: ordered petitioner to pay the balance of premiums due on Policy No. AH-CPP-9210651 (P314,103.05) plus legal interest until fully paid; affirmed denial of petitioner’s counterclaim.
- Petitioner elevated the case to the Supreme Court via appeal.
Reservations Stated on Receipts (as relied upon by Petitioner)
- Receipts for installment payments contained explicit reservations, including language substantially stating:
- "2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy;"
- "3. Subject to no loss prior to premium payment. If there be any loss such is not covered."
- Petitioner relied on such reservations to contend that risk did not attach and that policies were not binding absent full premium payment or express acknowledgment in the policy pursuant to Section 78 of the Insurance Code.
Trial Court Findings and Rationale
- The trial court acknowledged the reservations on the receipts but found:
- Premiums for the three policies were paid during the lifetime or term of the policies; consequently, risk attached under the policies